TOUGH ECONOMY

More pain for workers as state defies court order to execute new tax

In Summary

•Hillary Kipkirui, an administrator earning Sh50, 000 at a local e-commerce firm will have to part with other deductions like Sh6,000 bank loan and Sh8,000 mobile money loan.

•A penalty of five per cent of the contributions shall be payable by the employer for each month the contributions remain unpaid as prescribed in the Finance Act 2018.

One west Park in Westlands in Nairobi on September 8.
One west Park in Westlands in Nairobi on September 8.
Image: ENOS TECHE

Your April salary will be 1.5 per cent less as the State begins the implementation of the housing levy from May 9, 2019.

This means workers earning a minimum of Sh15,000 gross pay will have to part with Sh225 for the new levy.

The same worker will part with a total of Sh1,816 in taxes after other statutory deductions.

Those earning Sh50,000 and above will be hit harder as their total deductions are set to begin from Sh10,362 per month with Sh750 going towards the housing levy.

In a public notice published in the press yesterday, the State Department of Housing and Urban Development directed employers to deduct the levy together with other statutory levies by the 9th of every succeeding month.

INFO-GRAPHICS./ LUCY SWAN
INFO-GRAPHICS./ LUCY SWAN

“Both the employer and the employee shall each contribute 1.5 per cent of the employee's monthly basic salary provided that the sum of the total monthly contributions shall not exceed Sh5,000,” Principal Secretary of Housing and Urban Development Charles Hinga said.

In addition, the state agency made a provision that voluntary contribution may be made to the scheme at a minimum of Sh200 per month.

A penalty of five per cent of the contributions shall be payable by the employer for each month which the contributions remain unpaid as prescribed in the Finance Act 2018.

In September last year, in a memo to members of Parliament, President Uhuru Kenyatta proposed that the levy be increased to 1.5 per cent. This was up from the initially proposed 0.5 per cent by the National Treasury.

The state agency's directive comes four months after the court temporarily suspended its implementation pending the hearing and determination of a case filed by the Central Organisation of Trade Unions.

The interim orders for its suspension were issued by Justice Hellen Wasilwa of the Employment and Labour Relations Court.

Under the levy, at least Sh300 will be deducted from those earning Sh20,000 per month and Sh1,200 from those earning Sh80,000.

Earners of Sh100,000 will part with Sh1,500 while those with Sh150,000 gross pay will pay Sh2,250.

INFO-GRAPHICS./LUCY SWAN
INFO-GRAPHICS./LUCY SWAN

Those earning Sh330,000 and above will be deducted Sh5,000. The deductions are expected to raise up to Sh5.7 billion annually for the fund.

The contributions will thereafter be accessed through a tenant purchase scheme for those in the low-cost housing bracket.

Laws defining who falls within the bracket are yet to be passed.

Employment lawyer Anne Babu asserts that the move is unfair as a lot of issues are yet to be factored in. “What happens to people currently in employment and paying a mortgage? Are there enough checks made to ensure people's hard earned money is available after 15 years?” she asked.

National Taxpayers Association coordinator Irene Otieno says taxpayers risk losing their money because there are no accountability safeguards in place to guarantee the security of their contributions.

“There should not be a rush in a good idea given that we don’t have oversight structures. A discussion needs to be wider. Accountability is an issue,” Otieno said.

She said there should be a way of roping in workers in the informal sector so that they don’t get a raw deal at the end of the day.

The lobby group reacted angrily, warning that the government was doing that in disregard of a court order.

“The government should respect the court order and use the court process to regain the confidence of the contributors,” said Otieno.

There should not be a rush in a good idea given that we don’t have oversight structures. A discussion needs to be wider. Accountability is an issue
National Taxpayers Association coordinator Irene Otieno

In April last year, the National Treasury announced that it was teaming up with the private sector to establish Kenya Mortgage Refinancing Company to enable them to build affordable homes for low-cost income earners.

The firm is intended to finance commercial banks and savings and credit cooperative societies to enable them to chip in to President Uhuru Kenyatta's affordable housing agenda that seeks to bridge the annual 250,000 housing deficit.

While the laws are yet to be passed, the Central Bank of Kenya published draft regulations in February this year for mortgage refinancing companies to advance cash to banks for lending to home buyers.

People earning less than Sh50,000 per month will acquire homes under a tenant purchase scheme while those earning over Sh50,000 will qualify for a seven per cent mortgage repayable in 15 years.

According to the Finance Act 2018, employees who are not eligible for the affordable housing after 15 years from the date of making the first contribution will receive a transfer of their money to a pension scheme registered with the Retirement Benefits Authority.

Alternatively, the contribution will be transferred to their spouse or children or the listed next of kin.

Responding to the move, Federation of Kenya Employers termed the directive by PS Hinga and the Kenya Revenue Authority commissioner general as unlawful.

“This is contrary to the court orders which are still in force. We attended court proceedings on April 8, 2019, for the further mention of this case and obtained an extension of the court orders suspending the implementation of the housing levy up to May 20, 2019,” FKE executive director Jackeline Mugo said.

Mugo said that it is on the new date that the case will come up again for mention and further directions on its determination.

Currently, the government makes three major deductions - the National Health Insurance Fund, National Social Security Fund and Pay as You Earn (PAYE).

Some Sh900 is deducted as NSSF for workers earning up to Sh15,000 per month. Those earning up to Sh330,000 are deducted Sh1,080 for the same fund.

For the same brackets, at least Sh600 and Sh1,700 is deducted as NHIF respectively.

Hillary Kipkirui, an administrator earning Sh50,000 at a local e-commerce firm, will have to part with other deductions like Sh6,000 for a bank loan and Sh8,000 for a mobile money loan.

In his case, about half of his April income or Sh24,362 will go into paying loans and taxes.

Like Kipkirui, millions of Kenyans are facing it rough in an economy where household expenditures are on the rise as the country grapples with delayed rains and a rise in fuel prices.

In the last three months, for instance, the price of a packet of milk has gone up by Sh5 to retail at Sh55, while the cost of fuel has increased by Sh5. A 2kg packet of maize flour is now selling at Sh122, up from Sh86.55 barely four months ago.